Automation Alley's 2016 Technology Industry Report

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Southeast Michigan

vs.SiliconValley

Youve seen the headlines:

Could Detroit become the next Silicon Valley?1

Why Detroit could be the next Silicon Valley (and vice versa)2

Detroit: The next Silicon Valley?3

These headlines are intended to shock, because most peoples perceptions of the two regions couldnt be more different. The

prevailing attitude both inside and outside of Michigan is that Southeast Michigan is stuck in the past, that Detroit is, was and always will be, a Rust Belt town. In contrast, Silicon Valley is perceived as the epicenter of high-tech innovation and opportunity.

But at Automation Alley, our experience doesnt fit this paradigm.

Over the past 10 years of publishing this report, we have seen Southeast Michigan compete strongly with Silicon Valley in the tech industry. And every day, we work with technology companies that are expanding rapidly and developing industry-disrupting technology.

To change this outdated perception of Southeast Michigan, we talked to the people most familiar with the tech industry in the two regions: tech executives in Southeast Michigan and Silicon Valley.

And this was their overwhelming response: Southeast Michigan is the place to grow a technology business.

In nearly every category, tech executives saw more in Southeast Michigan: more ROI, more opportunity, more support.

And the news is exciting for job seekers as well as those looking to start or grow a business in Southeast Michigan. In 2016, more tech executives expect to make new hires, increase company revenue and invest in R&D than their Silicon Valley counterparts not to mention that a paycheck in Detroit goes much farther than a paycheck in San Jose. (See pg. 11 for the difference in rent and housing value for the two regions.)

Forget what you know about Silicon Valley. Forget what you think you know about Southeast Michigan. Lets write a new headline for tomorrows paper: Silicon Who? Tech Industry Booming in Southeast Michigan.

Southeast Michigan is the place to grow a

technology business.

FOREWORD Ken Rogers, Executive Director, Automation Alley

4 | 2016 TECHNOLOGY INDUSTRY REPORT

Thank You to our Sponsors

Copyright Notice and Permissions

This entire report is copyright (c) 2016 by Automation Alley.

All rights reserved, except permission to reproduce in its entirety, including this notice, for Automation Alley news media and research purposes. Resale without permission, and use in derivative works, is expressly prohibited. Fair use excerpts may be included in news or research reports provided a complete citation is given to Automation Alley.

1) K White, Sarah. Could Detroit become the next Silicon Valley? CIO.com. CIO, 05 November 2015. Web. 03 Feb. 2016.

2) Katz, Bruce. Why Detroit could be the next Silicon Valley (and Vice Versa). Fortune.com. Fortune, 07 Apr. 2015. Web. 03 Feb. 2016.

3) Harlow, Poppy. Detroit: The next Silicon Valley? CNNMoney. Cable News Network, 20 May 2011. Web. 08 Feb. 2016.

AUTOMATIONALLEY.COM | 5

Southeast Michigan is a hotbed of technology and innovation, and according to the industrys top executives, its a region that rivals even Silicon Valley as the best place to do business.

Thats the conclusion of Automation Alleys survey of senior executives currently working in the technology industry in Southeast Michigan and Silicon Valley. The results of this report predict growth for Southeast Michigan technology companies in 2016 and showcase regional strengths that rival those of Silicon Valley.

This survey coupled with key economic indicators and employment and growth projections for 2016, provided by East Lansing-based Anderson Economic Group highlights Southeast Michigans

vast business opportunity and technological impact. In addition to assessing data for the Southeast Michigan region, the report looked at data for fi ve of the nations

leading technology hubs: San Jose, Chicago, Boston, Seattle and Austin.

As Michigans leading technology business association, Automation Alley publishes this report to increase awareness of Southeast Michigan as a leading center for tech talent, innovation and opportunity in America. We encourage the regions leaders and in uencers, as well as companies

and individuals, to use the report as a tool to attract talent and investment to the region and to advocate for the technology industry of Southeast Michigan.

ABOUT THIS REPORT Southeast Michigan vs. Silicon Valley


99% of Southeast Michigan Technology Companies Project Revenue Growth in 2016

8 in 10 Southeast Michigan Technology Executives Plan to Invest in R&D and Make New Hires in 2016

While tech executives from both areas are optimistic about their company revenue in 2016, those from Southeast Michigan are more confi dent about their companys

revenue projections than their Silicon Valley counterparts.

Percentage of executives who expect their company revenue to grow in 2016

While the majority of tech executives surveyed plan to increase investment in research and development in 2016, slightly more (83 percent) Southeast Michigan executives expect an increase. In Silicon Valley, 81 percent of executives surveyed expect an increase in R&D investment.

Also, more executives from Southeast Michigan than Silicon Valley reported their company is planning to grow their talent base in 2016. In addition, the percentage of respondents who expected their employee headcount to decrease in Silicon Valley is higher than that of Southeast Michigan.

SOUTHEAST MICHIGAN

SILICON VALLEY

99%90%

SOUTHEAST MICHIGAN TECHNOLOGY COMPANIES ARE MORE OPTIMISTIC ABOUT 2016 GROWTH

THAN THEIR COUNTERPARTS IN SILICON VALLEY


THE FACTS

Employment in the technology industry in Southeast Michigan increased by an estimated 4.3%between 2014 and 2015, and employment between 2015 and early 2016 is projected to increase by 1.5% to 269,877 jobs.

The 3 industry sectors in Southeast Michigan that are projected to have the largest increase between 2015 and early 2016:

Related and other technology*: 65,399 (2.6% increase)

Advanced automotive: 92,031 (1.8% increase)

Life sciences: 17,279 (0.9% increase)

The number of technology-focused jobs in Southeast Michigan increased by an estimated 4.1% between 2014 and 2015. Technology-focused employment is projected to increase by 2.2% from 2015 into early 2016 to 195,745 jobs in Southeast Michigan.

The 3 technology-focused jobs in Southeast Michgian that are projected to have the largest increase between 2015 and early 2016:

Architecture and engineering: 94,222 (3.0% increase)

Technology management: 13,841 (2.1% increase)

Computer and mathematics: 70,783 (1.5% increase)

*To estimate employment for 2014 through 2016, Anderson Economic Group considered statewide employment trends for related subsectors, which include mining (NAICS 21); professional and commercial equipment and supplies merchant wholesalers (NAICS 4234); and architectural, engineering, and related services (NAICS 5413). AEG also considered Detroit and Ann Arbor Metropolitan Statistical Area-level trends for higher-level industry sectors, including merchant wholesalers durable goods (NAICS 423) and professional scientifi c and technical services (NAICS 54). NAICS 423 was available for the Detroit MSA only.

How do you expect your employee headcount to change in 2016?

Southeast MichiganIncrease - 82%Stay the Same - 15%Decrease - 3%

Silicon ValleyIncrease - 81%Stay the Same - 12%Decrease - 7%

Tech industry employment is projected to increase to 269,877 jobs in 2016.


More Southeast Michigan Tech Executives See Opportunity for Ongoing Education Than Silicon Valley Executives

Percentage of tech executives who believe their region has leading academic institutions for self-advancement

Southeast Michigan Technology Executives Agree Their Region Provides More Networking Opportunities Than Other Metro Areas

Percentage of executives who think there are more networking opportunities in their region compared to other metro areas

THE FACTS

Southeast Michigan was home to 30 colleges and universitiesthat offered science, technology, engineering and mathematic (STEM) degree completions in the 2013-2014 school year.

During the 2013-2014 school year, there were 9,335 STEM degree completions in Southeast Michigan, compared to 5,483 STEM degree completions in the same school year in the San Jose metro area.

STEM Degree Completions:

Southeast Michigan:9,335

Silicon Valley:5,483

SOUTHEAST MICHIGAN

SOUTHEAST MICHIGAN

SILICON VALLEY

SILICON VALLEY

81%

85%

77%

68%

SOUTHEAST MICHIGAN IS A BETTER PLACE FOR TECHNOLOGY PROFESSIONALS TO BUILD

THEIR CAREERS THAN SILICON VALLEY


Southeast Michigan Trumps Silicon Valley When It Comes to Cost of Living

Percentage of tech executives who think their region has a

lower cost of living compared to other metro areas

THE FACTS

In 2013, the median gross rent in the Southeast Michigan region was $855, below the national average and the lowest of the comparison regions.*

Fewer than 35% of renters in Southeast Michigan pay $1,000 or more in gross rent, while in the other

fi ve comparison areas, 49% or more

of renters pay $1,000 in rent.

Of the six comparison areas, Silicon Valley has by far the highest median gross rent, at $1,629.

In 2013, the Southeast Michigan region had the most affordable housing of the six comparison areas, with a median housing value of $127,904. In contrast, the median housing value in San Jose in 2013 was $654,800.

* Comparison regions include the Detroit, San Jose, Chicago, Boston, Seattle and Austin metro areas.

The Majority of Southeast Michigan Tech Executives See Diverse Technology Opportunities in the Region

Percentage of respondents who think their region offers diverse technology opportunities and experiences

Fewer than 35% of renters in

Southeast Michigan pay $1,000 or more

in gross rent

SOUTHEAST MICHIGAN

SOUTHEAST MICHIGAN

SILICON VALLEY

SILICON VALLEY

80%

74%

72%

48%


Southeast Michigan Yields Greater ROI, According to Area Tech Executives

Percentage of tech executives who believe technology companies can have greater return on investment if they

have a business location in their metro area

Nearly 7 in 10 (68 percent)Southeast Michigan tech

executives believe technology companies can bene t from a

lower cost of capital if they have a business location in their metro area, compared to 60

percent in Silicon Valley.

Southeast Michigan Technology Executives See Greater Support from the Government Than Their Silicon Valley Counterparts

Percentage of tech executives who believe

technology companies can bene t from government support

if they have a business location in their metro area

SOUTHEAST MICHIGAN

SILICON VALLEY

83%

69%

SOUTHEAST MICHIGAN

SILICON VALLEY

75%63%

SOUTHEAST MICHIGAN IS A BETTER PLACE FOR TECHNOLOGY COMPANIES TO DO BUSINESS

THAN SILICON VALLEY


THE FACTS

Michigans overall tax burden, at 8.9%, is lower than the national average (9.1%).

Michigan has the second lowest public utilities sales tax at 0.1%, the second lowest corporate income tax at 0.6%, and the lowest rate for license fees at 0.3% among the six comparison regions.

Michigan has lower public utilities sales tax, corporate income tax, license fees, and general sales tax than California. In addition, the commercial and industrial electricity costs in Michigan are also lower than that in California.

Public utilities sales tax: MI (0.1%) vs. CA (0.4%) Corporate income tax: MI (0.6%) vs. CA (0.8%) License fees: MI (0.3%) vs. CA (0.7%) General sales tax: MI (1.6%) vs. CA (1.8%) Commercial electricity (cents/kWh): MI ($10.42 cents) vs. CA ($18.22 cents)

Industrial electricity (cents/kWh): MI ($7.07 cents) vs. CA ($13.96 cents)

* Comparison regions include the Detroit, San Jose, Chicago, Boston, Seattle and Austin metro areas.

Southeast Michigan Trumps Silicon Valley When it Comes to Tax Burden

Percentage of tech executives who think their region has a lower tax burden

compared to other metro areas

Southeast Michigan Tech Executives Think Its Easier to Retain Talent Than Their Silicon Valley Counterparts

Percentage of executives who believe it is easier for technology companies to retain talent in their

region compared to other metro areas

Michigans overall tax burden, at 8.9%, is lower than the national average (9.1%)

SOUTHEAST MICHIGAN

SOUTHEAST MICHIGAN

SILICON VALLEY

SILICON VALLEY

74%

63%

67%

48%


METHODOLOGYThis report contains two separate studies. One study is the technology industry data collection and analysis for the metro Detroit region. Automation Alley commissioned the East Lansing, Mich.-based Anderson Economic Group LLC. (AEG) to conduct the study.

The second study is an online survey among 150 senior executives who are currently working in the technology industry in the Southeast Michigan and the Silicon Valley areas.

Study 1 Methodology:To complete the analyses and benchmark the technology sector in metro Detroit against five other metropolitan areas in the United States including Chicago, Seattle, Austin, Boston, and San Jose, AEG:

Collected data from the U.S. Census Bureau and the Bureau of Labor Statistics to analyze the technology industry, establishments, and workforce (occupations) of the technology sector.

Collected data from the National Center for Education Statistics on degree completions in Science, Technology, Engineering, and Mathematics (STEM) fields as a measure of preparation for continued growth.

Collected data from the U.S. Census Bureau, U.S. Energy Information Administration, and the State Business Tax Burden Study created by Anderson Economic Group to analyze indicators on the cost of living and cost of doing business in each metropolitan area as measures of the desirability of the region for both businesses and potential employees.

Analyzed employment trends in technology industry clusters in metro Detroit from 2006 through 2013, state-

level technology industry data for 2011 through 2015, and top-level industry employment levels for the Detroit and Ann Arbor metropolitan statistical areas (MSAs) for 2011 through 20151.

Due to the fact that MSA-level data for more recent years (2013-mid 2014) are primarily available at higher-level NAICS codes, AEGs estimates for technology clusters are based on actual, but partial, employment data, as well as statewide trends.

Analyzed occupational employment trends in metro Detroit from 2011 through 2014, 2010-2020 occupational employment forecasts for the Detroit and Ann Arbor MSAs, state-level technology industry employment for 2011 through 2015, and top-level industry employment for the Detroit and Ann Arbor MSAs for 2011 through 20152. Since 2014 is the most recent year for which actual occupational employment data is available, AEG used employment data for industries corresponding to each technology occupational cluster to inform their estimates for 2015 and 2016. Data at the MSA level was primarily available at broad NAICS categories. State-level data was available at more specific NAICS code levels.

Below are the sources for the technology industry data

Industry Data: The industry data used in this analysis was obtained from the United States Census Bureau County Business Patterns program. The vintage is 2013, which represents the most current data available at the time of publication.

Occupation Data: The occupation data used in this analysis was obtained

from the United States Bureau of Labor Statistics Occupational Employment Statistics program. The vintage is 2014, which represents the most current data available at the time of publication.

University STEM Degree Data: The university degrees data used in this analysis was obtained from the National Center for Education Statistics Integrated Postsecondary Education Data System data center, Compare Individual Institutions option. The vintage is 2013-2014, which represents the most current data available at the time of publication. The degrees total includes all levels [associates, bachelors, masters, and doctors (research/scholarship, professional practice, and other)], but not certificates. The Classification of Instructional Programs (CIP) codes used are based on IPEDS predefined Postsecondary Awards in Science, Technology, Engineering, and Mathematics variable3. These include programs in:

Computer and information sciences Engineering Engineering technologies Biological and biomedical sciences Mathematics and statistics Physical sciences Science technologies

Population Data: The population data used in this analysis was obtained from the United States Census Bureau Population Estimates. The vintage is 2014, which represents the most current data available at the time of publication.

Cost of Living Data: The housing data used in this analysis was obtained from the United States Census Bureau, American Community Survey 2013 5-year estimates. The vintage is 2013, which represents the most current data available at the time of publication.

Cost of Doing Business Data: The


state and local taxes paid by businesses data used in this analysis were taken from the 2015 State Business Tax Burden Ranking Report, 6th Installment, by Anderson Economic Group. The electricity data used in this analysis were obtained from the U.S. Energy Information Administration. The vintage is September 2015, which represents the most current data available at the time of publication.

1AEGs industry estimates are representative of employment levels as of March 31 of each year.

2The first year from which AEG has consistently reported occupational employment statistics for Automation Alley was 2011. AEGs occupational estimates are representative of employment levels as of May 31 of each year.

3While the STEM completion programs in this report are based on those included in the Postsecondary Awards in Science, Technology, Engineering, and Mathematics metric used in the 2012 report, the data may not be directly comparable, as the data for this report was pulled by each degree category, rather than STEM as a whole.

Study 2 Methodology:The other study is an online survey among 150 senior executives who are currently working in the technology industry in the Southeast Michigan and the Silicon Valley areas between November 19-24, 2015. The respondents were recruited through Research Now online survey panel.

For this study, a senior executive is defined as a professional who has a manger or above job title. In addition, the Southeast Michigan area in this study refers to the following eight counties that Automation Alley represents: Wayne, Macomb, Oakland, St. Clair, Monroe, Washtenaw, Livingston and Genesee.

The total number of participants for the study was 150, with 56% of them male and 44% female. All of the respondents self-identified as a senior executive in the technology industry from either Southeast Michigan or Silicon Valley. There were 75

respondents from each area. In addition, 28% of respondents reported that they are a C-level, 9% are a VP, SVP, or EVP, 29% are a director, and 35% are a manager, supervisor, or lead. Among all respondents, 7% of respondents were 18 to 24 years old, 51% were 25 to 34 years old, 29% were 35 to 44 years old, 9% were 45 to 54 years old, 3% were 55 to 64 years old, and 1% were more than 65 years old.

Among the 150 respondents, 53% were in computer and IT services. The rest of the respondents came from a variety of industry sectors, including: computer software development (13%), computer network service (5%), computer hardware development (5%), computer-generated graphics, imaging, and document management service (4%), mobile application development (3%), hardware/software asset management (2%), internet services provider (2%), web development and programming (2%), telecommunications (2%), medical and biotechnology (2%), engineering, design, and prototyping service (1%), robotic and automation (1%), other technology based services (2%), computer product distribution (1%), and other (1%).

About Automation Alley Automation Alley is Michigans leading technology business association, connecting businesses with talent, resources and funding to accelerate innovation and fuel Southeast Michigans economy. Since its founding in 1999, the nonprofit has grown to include nearly 1,000 tech-focused members in businesses, education and government. Automation Alley focuses its efforts in five areas: advanced manufacturing, defense, entrepreneurship, international business and talent development. For more information, visit automationalley.com.

About Anderson Economic GroupAnderson Economic Group, LLC (AEG)

was founded in 1996 and today has offices in East Lansing, Michigan and Chicago, Illinois. AEG is a research and consulting firm that specializes in economics, public policy, financial valuation and market research. The firm first provided Automation Alley with a Technology Industry assessment in 2005, and has done so in subsequent years with a consistent methodology and careful definition of technology industries and occupations. For more information, visit www.AndersonEconomicGroup.com.

Cautions and Limitations of the Industry DataThe analysis and projections in this report are based on the most recent publicly available data. Because economic, market, and industrial conditions change; data can prove incomplete or misleading; and government policies are outside our control; we cannot warrant that actual employment levels during the period, or future periods, align with those estimated in this report. We recommend careful consideration be given to actual market and industry conditions by any person using portions of this analysis in any investment decision, and do not guarantee the future outcome of any business venture, government policy, or legal or regulatory proceeding.

Copyright Notice and PermissionsThis entire report is copyright 2016 by Automation Alley. Selected portions retain an original copyright 2015 by Anderson Economic Group, LLC (AEG). AEG work is used in this report by Automation Alley with permission. All rights reserved, except permission to reproduce in its entirety, including this notice, for Automation Alley news media and research purposes. Resale without permission, and use in derivative works, is expressly prohibited. Fair use excerpts may be included in news or research reports provided a complete citation is given to Automation Alley.


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Automation Alley's 2016 Technology Industry Report